Multinationals Say Nigeria’s Dollar Crunch Is Hurting Business | Independent Newspapers Limited
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Multinationals Say Nigeria’s Dollar Crunch Is Hurting Business

Posted: Mar 1, 2016 at 5:57 am   /   by   /   comments (0)

Multinational groups say a dollar shortage in Nigeria driven by the oil price crash is forcing local suppliers to buy hard currency at a black market premium, pushing up their operating costs and prices, and obstructing business in Africa’s biggest economy, reports FT.

The naira has been under pressure since the start of the oil price rout in mid-2014. But a shortage of dollars on the official foreign exchange market has pushed the cost of the US currency to an all-time high on the parallel — or black — market, where people are having to pay twice as much as the formal rate.

The widening spread is hurting businesses that need dollars — nearly every manufacturer. And as Africa’s top crude producer suffers its worst economic downturn for 20 years, few see the currency scarcity ending before oil prices recover.

The dollar crunch is having a “seriously adverse” impact on business, says Yaw Nsarkoh, Unilever Nigeria’s managing director.

The consumer group makes goods from Lifebuoy soap to Knorr stock cubes in the country, where it has operated for more than 90 years. The Nigeria subsidiary, which is 60 percent-owned by Anglo-Dutch group Unilever, had revenues of roughly N56 billion (€250m) in 2014.

The majority of Unilever Nigeria’s production is done locally, but some essential materials are not available in the country and must be imported using dollars, Mr Nsarkoh says. While Unilever, as a multinational, is able to access dollars through the official market run by the central bank, many local companies are unable to do so.

“The foreign exchange shortage has impacted our supply lines. We are spending much more time in order to secure the foreign exchange for certain raw materials, for some equipment we need for our plants,” he says.

Guinness Nigeria, the country’s second-biggest brewer, has similar troubles.

“For the past three months we have been having challenges procuring the foreign exchange we need to bring in raw materials and other imported [supplies] we need for production,” says Sesan Sobowale, a spokesman for the Diageo subsidiary.

The materials Guinness sources locally are more expensive, but costs cannot be passed on to consumers with less and less disposable income, he says. Margins were “under severe pressure”, he adds, pointing to half-year results released last month that showed net income had fallen 66 percent to N1.2 billion ($6 million) in the six months to December.

To conserve foreign reserves and encourage local industry in the face of the currency squeeze, the central bank last year banned the import of 41 items including chickens, rice and steel pipes. Dollar scarcity has also meant that it is difficult for companies to import goods not on the banned list.

The South African retailer Truworths said last week that it was quitting Nigeria, citing import restrictions and the inability to access foreign exchange as among the reasons for its decision.

Nigeria’s foreign reserves were above $40 billion just a few years ago, but the collapse in crude prices combined with mismanagement and suspected graft under the previous government has left official reserves hovering just above $28 billion.

Meanwhile, the International Monetary Fund (IMF) predicts growth of 3.25 percent in Nigeria this year, down from an average 6.8 percent in the decade to 2014. The government is in talks with the World Bank and the African Development Bank over $3.5 billion in loans to plug a $15 billion budget deficit.

“A degree of inflation determined by the parallel rate” has seeped into the product prices, Mr Nsarkoh says. He declines to specify how many products Unilever had raised prices on but says increases have been made across several categories.

“In Nigeria today I do not believe there is a business that is in one way or the other not affected by the fact that there is a parallel rate,” he says.

The situation is worse for smaller companies, local executives say.

“When you apply for letters of credits [for dollars to import materials].?.?.?it takes about six to seven months before those letters are established,” says Femi Akinnirun, a manager at Niger Biscuit. “It has caused our costs to go up astronomically.”

He says, for instance, one flour supplier has raised prices because it has had to pay for imported wheat with dollars bought on the black market.

The impact of companies having to source dollars through the parallel market is “obviously not the best thing for the country”, says Frank Jacobs, head of the Manufacturers Association of Nigeria. “It means those [groups] have to increase the price of their products and therefore the product becomes uncompetitive.”